“While there are no shortcuts to getting rich, there are smart ways to go about it.”
– Phil Town, American investor and motivational speaker
In my last post, I talked about how your goal should be to manage your income so that you can be free of the confines of a typical job – so you can live your life as you wish. As I said, passive income leads to an active way of life where you’re not tied in by a job. Whereas active income can leave you trapped.
An enhanced lifestyle is, of course, the aim and benefit of increasing income. The entire Wealth Matrix process is designed to give you the lifestyle of your dreams. Keep in mind, however, that lifestyle is the last step in the process. People stay stuck and get into big trouble when they take shortcuts on the path to a bigger, better lifestyle. These shortcuts take one of two forms:
Using active income to fund lifestyle.
The first reason why people stay stuck in the trap of active income is because they go straight from income to lifestyle. First of all, they have just one source of income—a job—which alone is a great risk. Then, instead of investing as much of their income as possible for their future benefit, they use their income to fund their lifestyle. They have no goose that produces gold without their effort, and whatever gold they earn through personal effort is spent on depreciating liabilities, such as cars and furniture.
Leveraging the Wealth Matrix process to your advantage requires first and foremost the ability to manage and defer lifestyle. As Brian Tracy said, “The ability to discipline yourself to delay gratification in the short term in order to enjoy greater rewards in the long term, is the indispensable prerequisite for success.”
Avoid the trap of instant gratification and the desire to accumulate liabilities. The goal is to create a solid foundation of assets, and the cash flow generated by your assets is then used to fund your lifestyle. The way to achieve your
5 Day Weekend lifestyle is using your active income to fund basic living expenses, with the remaining going toward passive income-generating assets. Create a goose that lays golden eggs first and you’ll never run out of gold.
“I really like my life. I’ve arranged my life so that I can do whatever I want.”
– Warren Buffett
Using active income to speculate on Momentum investments.
Where people get into trouble is when they skip from the Income phase to the Momentum phase without knowing what they’re doing. In other words, they speculate and gamble on big, high-risk projects without understanding the fundamentals of investing. They hope and pray for a big payout, having little or no control over the investment. They want big money fast.
Almost always, what happens in this scenario is they lose everything they’ve invested. And even when it works, they typically end up losing it all anyway because, by taking a shortcut, they hadn’t developed the necessary skills and discipline to keep it.
You’ll learn more about the various types and strategies for Growth and Momentum investments in later blog posts. For now, it’s critical to understand that the order of the process matters a great deal. Each step builds on the preceding step. As in all areas of life, shortcuts in finances create nothing but long-term heartache.
As J.R.R. Tolkien put it, “Shortcuts make long delays.”
In my next few posts, I’ll talk to you about three steps you can take to implement the Wealth Matrix.
I’d love to hear from you: what is your behavior regarding instant gratification? Do you avoid it, do you plan for the future, or do you indulge? Thank you for sharing.
Secure your copy of the “5 Day Weekend” book. 5 Day Weekend: Freedom to Make Your Life and Work Rich with Purpose [Nik Halik & Garrett Gunderson]